Dollar falls more than 1% vs. euro, yen on week

SaumyaVaishampayan

NEW YORK (MarketWatch) — The dollar posted weekly losses of more than 1% against the euro and yen as investors readjusted their views on the future path of interest rates after minutes from the Federal Reserve’s March meeting showed officials hadn’t changed their outlook on monetary policy.

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Comments from Fed Chairwoman Janet Yellen in the wake of the Fed’s March decision referenced an approximate six-month period between the end of the Fed’s bond buys and the first interest-rate hike, suggesting that a tightening in policy could come sooner than had been expected. Higher rates would boost the dollar.

But the release of the Fed minutes on Wednesday pushed back on that idea, spurring dollar losses. “To a large extent, the Fed minutes suggested that the market may have been off-base in beginning to price in a rate hike sooner than previously expected,” said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange, Inc.

The dollar
USDJPY, +0.00%
rose to ¥101.69 from ¥101.49 late Thursday, but posted a weekly loss of 1.5%. The euro
EURUSD, +0.0000%
was steady at $1.3886, for a weekly gain of 1.3%.

Data released Friday showed U.S. producer prices rose by more than expected last month, with details in the report hinting at a possible buildup in inflationary pressure that is desired by the Federal Reserve. The producer-price index, which measures wholesale inflation, rose by a seasonally adjusted 0.5% in March, beating economist expectations of a 0.1% gain. Read: Economists struggle to make sense of producer price jump.

The ICE dollar index
DXY, +0.03%
which measures the dollar’s strength against six rivals, was at 79.492 versus 79.411 late Thursday. The WSJ Dollar Index
BUXX, +0.00%
another gauge of dollar strength, edged up to 72.69 from 72.61.

The Fed looks at employment and inflation in determining monetary policy, with continued levels of low inflation cited by Fed Chairwoman Janet Yellen as one reason for maintaining accommodative policy. “If there were signs inflation were approaching target sooner, the market might begin to doubt the credibility of that claim,” said Brian Daingerfield, a foreign-exchange strategist at RBS. “We’re still [far] away from inflation being at that point,” he added.

Data supporting potential upward pressure in prices could boost expectations that the Fed could tighten policy sooner than expected. The consumer-price index for March is scheduled for release next week.

The British pound
GBPUSD, +0.0000%
fell to $1.6736 from $1.6784. The pound was weighed on by a 2.8% decline in construction output in February from January.

The Australian dollar
AUDUSD, +0.0000%
fell to 93.95 U.S. cents from 94.13 U.S. late in the prior session.

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